Brexit

Brexit is a bit like the proverbial British summer; we know it’s coming but we have no idea quite what it will look like. For SME’s, what is clear from all this uncertainty is that there will be opportunities and threats:

Exchange Rate Fluctuations: Sterling has devalued 15% since the EU referendum, so Brexit is likely to influence this further:

• Understand and minimise your FX exposure on your non-sterling touchpoints (eg: selling prices, supply chain costs, orders and cash held in foreign currencies),
• Material changes in exchange rate could fundamentally affect the countries you prefer to buy and sell from and to,
• Businesses who import from the EU may wish to delay passing on selling price increases to customers/clients, to attract new business away from competitors who have passed on price increases immediately,
• Lock into current GBP prices, where possible (eg buy 3 year Microsoft licences).

New Tariff Regime: Our current ‘single market’ trade agreement (ie, between the EU and the rest of the world) is likely to change:

• Material changes in tariffs (WTO tariffs average 2.3%, excluding Food/Agriculture) could fundamentally affect the countries you prefer to buy and sell from and to.
• It may now be easier for you to sell to key European markets through setting up an overseas subsidiary.

Interest Rates: It is feared that further quantitative easing following Brexit, to stimulate activity, will almost certainly nudge inflation, and hence interest rates, upwards:

• Businesses who will soon need to borrow should consider bringing forward funding applications so as to lock into the current rock bottom UK fixed interest rates.

Regulation: All EU laws will initially be converted into UK law, but your business should prepare for future changes:

• Projects and activities that take advantage of current generous (ie, state aid) tax rules should be brought forward (eg R&D Relief, EIS equity funding).
• Disliked EU rules, such as the basis of calculating holiday pay, could be repealed.

Shock: UK consumers and businesses are very sensitive to uncertainty and confidence:

• Build up a cash resources buffer to protect against a potential short term stagnant period around the time of Brexit,
• Be prepared for trade activity to bounce back afterwards,
• Could this be “a good day to bury bad news”, eg, general price increases?

Doomsday Scenario: Sensible precautions should be taken in case Theresa May’s Brexit negotiations turn out as unfavourably as David Cameron’s EU reform pre-referendum negotiations:

• UK bank deposits are guaranteed up to a balance of £85k. Those holding more cash than this with any single bank may wish to divest this risk by opening deposits with other banks.